Judge Dismisses Austin's Tax Lawsuit Against State

A Travis County district judge dismissed a lawsuit Friday by the city of Austin that challenged the state's property tax system.

Austin filed the lawsuit in August, arguing that the appraised values of billions of dollars in commercial and vacant land do not match market prices, a violation of the state Constitution's requirements that all property be taxed “in proportion to its value” and in an “equal and uniform” manner.

At a hearing Friday, District Judge Tim Sulak agreed with challenges to the suit brought by some property owners, including one that the city lacked standing to challenge the constitutionality of the state's property tax system.

“We need a court to rule on the fairness of the property tax system," Adler said. "The court’s decision today did not reach this question."

Attorney General Ken Paxton, who requested to intervene in the lawsuit last week, said the dismissal was a win for Texas taxpayers.

“The City of Austin’s attempt to rewrite Texas law was beyond the scope of their authority and put all property owners in the state at risk of higher taxes," Paxton said in a statement. "We are pleased the judge ultimately dismissed this lawsuit, giving Texans a voice against unlawful efforts to increase tax revenue without input from lawmakers or taxpayers.”

In filing the suit, Austin officials were targeting an appraisal system that critics say has become increasingly stacked against homeowners. They argue that the rules make it easier for commercial and industrial property owners to win large reductions in their values via a process known as equity appeals. Those appeals have shifted the tax burden toward homeowners over time, Austin officials argued.

A decision on whether to appeal the court's decision will be up to the city council, said Jason Stanford, a spokesman for the mayor. Either way, Adler said he planned to continue pressing the issue of fairness in the property tax appraisal system.

"The City of Austin’s challenge is brave, creative and in uncharted territory," Adler said. "We’re going to keep trying until we find a way to make the tax system more fair. I am proud to be part of a city that takes risks to stand up for fairness.”

Though the Travis Central Appraisal District was listed as one of the suit's defendants, city leaders made clear when the suit was filed that the real target was members of state government. Nonetheless, the appraisal district opposed the lawsuit and agreed with the challenges that the judge ruled on Friday, said Debbie Cartwright, a lawyer for the appraisal district.

Among the issues Austin officials hoped to challenge with the suit was Texas being one of only a handful of states that do not require disclosure of sales prices of real estate transactions for appraisal purposes. Maintaining the ban on mandatory sales price disclosure is a key issue of the Texas Association of Realtors, which was among the groups that filed Friday's successful challenge to the suit.

“We are pleased with Judge Sulak’s decision and appreciate his time and attention to ensuring all property owners are constitutionally afforded to be treated in a fair and equal manner," said Daniel Gonzalez, director of legislative affairs with the Texas Association of Realtors.

State Sen. Paul Bettencourt, R-Houston, has been one of the lawsuit's loudest critics and said in a speech in Austin last week that he intends to file legislation in 2017 that would block a city filing a similar suit in the future.

“There’s never been a case like this in Texas history, and I tell you, I will do whatever I can to plug this hole," Bettencourt said.

Disclosure: Steve Adler is a major donor and former board chairman of The Texas Tribune. The Texas Association of Realtors is a corporate sponsor of the Tribune. A complete list of Tribune donors and sponsors can be viewed here.

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